September 01, 2021

Welcome to another year of the month of Taxtember.  A month we focus on explaining various tax strategies that are available.  We have had some great market returns for the past 3 years (what pandemic?).  So, your portfolio is looking great and with all time highs in the Dow, S&P 500, and NASDAQ.  The question we want to think about is how much of those gains we are going to keep and how much goes away in taxes.  That is the tricky part and unfortunately not done correctly can be very costly.

We all know the saying the only two certainties in life are Death and Taxes. The question is when will each happen?  We know we can’t predict (or even want to know) when the first one will happen.  I challenge everyone to think about how we time the second one.

Paying taxes should be considered more of a journey than a once a year trip to the CPA’s office to write a check out to the IRS.  With our clients, we try to develop a tax planning strategy for 3, 5, or even 10 years out.  We also understand that our plan will change each year by IRS tax changes, the markets up’s and down’s, our own financial needs,  and even financial opportunities that may present itself. 

The guideposts that we use with our clients are their retirement age, when they take Social Security benefits, when they are eligible for Medicare, and when Required Minimum Distributions will begin.  We then incorporate various strategies like modeling Social Security benefits, utilizing Donor Advised Funds, or Qualified Charitable Distributions, ROTH conversions, and IRA Distribution tactics. 

By planning this journey, we can start timing how much we will pay in taxes.  Some years we might take advantage of being in a low tax bracket to realize a 0% capital gains rate in our brokerage account.  Other time we may elect to move into a higher bracket for a few years knowing this will allow us to be in a lower bracket down the road.

So, with the month of Taxtember starting I challenge you to think of your own tax journey and plan to make it a smooth trip.  Don’t just do your taxes like they always have been done.  Look for guideposts and take advantage when you can.  If you need help with that strategy, set up an appointment and bring in your tax return.